As the year 2024 draws to a close, all eyes are on the Federal Reserve’s final policy meeting. Market expectations are firmly centered on the Fed implementing a 25 basis points cut in the policy rate. This move is widely anticipated and has been priced in by investors, as indicated by the CME FedWatch Tool, which forecasts a reduction that would bring the policy rate to the 4.25%-4.5% range.
However, it’s not just the rate cut itself that has the market’s attention. The revised dot plot, set to be released alongside the policy statement, holds the potential to offer crucial insights into the future path of interest rates. The September SEP had shown that Fed officials’ median view of the fed funds rate at the end of 2025 was 3.4%. Any revisions to this projection, along with changes in inflation and growth expectations for the coming year, could significantly sway the market’s perception of the Fed’s policy stance.
Fed Chairman Jerome Powell’s remarks during the post-meeting press conference will also be closely dissected. His words could provide further clarity on the central bank’s thinking and its approach to future rate adjustments. TD Securities analysts predict that while the Fed is likely to signal additional policy easing for 2025, the guidance on the pace of rate cuts may be more guarded. This could potentially be seen as a “hawkish rate cut” by market participants.
The implications of these developments extend beyond the interest rate realm. The valuation of the US Dollar is likely to be directly affected. With the Christmas holiday on the horizon, the currency’s performance in the lead-up to and following the Fed’s decision could have a notable impact on various market segments. As investors await the Fed’s announcements, the market remains on tenterhooks, eager to decipher the signals that will shape the economic and financial landscape in the months to come.
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